News: Stocks gain amid hopes of end in trade war

Nov 6, 2019

With shares across the world rising, and “progress talks” between the US and China, the US-China trade world looks to be drawing to a close.

World shares hit a 21-month high on Monday (4 November) on the back of signs that the United States and China trade war may soon come to an end as well as signs that the world may avoid a recession, reported Reuters.

Last week, Beijing and Washington spoke of progress in talks targeted at settling a trade war that has shaken financial markets and bruised the global economy. In fact, US officials expect a deal to be signed this month.

Tracking shares across 47 countries, the MSCI world equity index rose 0.3% to its highest level since February last year, with key European indexes following the upward trend of Asian indexes.

The broad Euro STOXX 600 rose 0.9%, while Frankfurt’s main index, which is considered as highly exposed to the trade dispute, gained 1.2% or its highest since June 2018.

The bullish tone also spilled over currency markets, with the Chinese yuan increasing to a 12-week high against the dollar.

Investors are expecting the two biggest economies of the world to reach a “phase one” trade deal, with the key date in focus being 15 December – when new tariffs imposed by the US government on Chinese imports are due to kick in.

“It will be a convenient decision for President Trump to let phase one be signed,” said Alessia Berardi, senior economist at Amundi. “This is a kind of low-hanging fruit to collect and is very much possible.”

Notably, US President Donald Trump aims to reap political benefits from closing a deal ahead of the upcoming 2020 presidential election.

Investors are also emboldened by a sense that a global recession, which is forecasted by many investors and economists to hit in 2020, was a diminishing risk.

The United State’s better-than-expected jobs report in October added to signs of economic resilience.

“The macro environment is still resilient, stabilized and maybe even showing signs of improvement – and that is a net positive for risky assets,” said Unigestion senior portfolio manager Olivier Marciot.

Over at the bond markets, the three-month to 10-year Treasury yield curve – a key indication of US recession when inverted – climbed again after remaining in negative territory since May.

On the earnings front, the US defied expectations of an annual aggregate contraction for the third consecutive quarter.

“Expectations were low going into earnings, and things are getting better than expected,” said Marciot.